Chapter 1: What Is Organizational Behavior?

Learning Objectives

After reading this chapter, you should be able to do the following:

    1. What organizational behaviour (OB) is.
    2. Why organizational behaviour matters.
    3. Current challenges for OB.
    4. Current opportunities for OB.

This book is all about people, especially people at work. We will share many examples of people making their workplaces fit their needs. People can make work an exciting, fun, and productive place to be; or they can make it a routine, boring, and ineffective place where everyone dreads going.

Steve Jobs, cofounder, chairman, and CEO of Apple Inc. attributes the innovations at Apple to people, noting, “Innovation has nothing to do with how many R&D dollars you have.…It’s not about money. It’s about the people you have, how you’re led, and how much you get it” (Kirkpatrick, 1998).

Steve Jobs presenting a new Apple product.
Figure 1.1 Steve Jobs presenting a new Apple product.

Just like people, organizations come in many shapes and sizes. We understand that the career path you will take may include a variety of different organizations. On average, 30% of Canadians stay in any one job for over four years (Workopolis, 2014). In order to succeed in this type of career situation, individuals need to be armed with the tools necessary to be lifelong learners. This book will not give you all the answers to every situation you may encounter in your career. Instead, this book will give you the vocabulary, framework, and critical thinking skills necessary for you to diagnose situations, ask tough questions, evaluate the answers you receive, and act in an effective and ethical manner in various professional scenarios.

Throughout this book, we will use examples of organizations that are comparable to a diverse range of other organizations such as publicly held and for-profit companies like Google and Air Canada. We will also focus on both small and large corporations. You will see examples from Fortune 500 organizations such as Manulife Financial and Royal Bank of Canada, as well as small start-ups.

Together, we will examine people at work both as individuals and within work groups. We will study how they impact and are impacted by the organizations they work for. Before we can understand the different levels of organizational behaviour, we first need to agree on a definition of organizational behaviour.

Organizational behaviour (OB) is the study of how people think, feel, and behave individually or in groups within organizations. The goal of OB is to understand the behaviour of people at work in order to develop interventions, systems, and processes that create happier and more productive employees, more effective leaders, and more meaningful work. As you will see throughout this book, definitions are important. They are important because they tell us what something is as well as what it is not. For example, we will not be addressing childhood development in this course—the concept is often covered in psychology—but we might draw on research about twins raised apart to understand whether job attitudes are affected by genetics.

OB draws from other disciplines to create a unique field. As you read this book, you will most likely recognize OB’s roots in other disciplines. For example, when we cover topics such as personality and motivation, we will again review studies from the field of psychology. The topic of team processes relies heavily on the field of sociology. In the chapter relating to decision making, you will encounter the influence of economics. When we study power and influence in organizations, we borrow heavily from political sciences. Even medical science contributes to the field of Organizational Behaviour, particularly to the study of stress and its effects on individuals.

OB spans topics related from the individual to the Organization.
Figure 1.2 OB covers topics related to the individual, group,
and organization.

Those who study organizational behaviour—which now includes you—are interested in several outcomes such as work attitudes (job satisfaction and organizational commitment) and job performance (customer service and counterproductive work behaviors).

A distinction is made in OB regarding which level of the organization is being studied at any given time. There are three key levels of analysis in OB: the individual, the group, and the organization. For example, if I want to understand my boss’s personality, my analysis would be at the individual level. If I want to understand how my manager’s personality affects the team, I would consider the team level. But, if I want to understand how my organization’s culture affects my boss’s behaviour, I would be interested in the organizational level of analysis.

Why Organizational Behavior Matters

OB matters to three key stakeholders. Firstly, it matters to workers. OB can help employees become a more engaged organizational member. Getting along with others, doing great work, lowering stress levels, making more effective decisions, and working effectively within a team—these are all things OB addresses!

OB matters to three key stakeholders. Firstly, it matters to workers. OB can help employees become a more engaged organizational member. Getting along with others, doing great work, lowering stress levels, making more effective decisions, and working effectively within a team—these are all things OB addresses!

Secondly, OB matters to employers. A recent survey asked employers which skills are the most important for them when evaluating job candidates, and at the top of the list were topics covered by OB.

Finally, it matters to organizations. The best companies in the world understand that the people make the place. How do we know this? Well, we know that organizations that value their employees are more profitable than those that do not (Huselid, 1995; Pfeffer, 1998; Pfeffer & Veiga, 1999; Welbourne & Andrews, 1996).

Research shows that successful organizations have a number of things in common such as providing employment security, engaging in selective hiring, utilizing self-managed teams, being decentralized, offering competitive compensation, training employees, reducing status differences, and sharing information (Pfeffer & Veiga, 1999).

Research shows that organizations that are considered healthier and more effective have strong OB characteristics such as role clarity, information sharing, and performance feedback. Unfortunately, research shows that most organizations are unhealthy, with 50% of respondents saying that their organizations do not engage in effective OB practices (Aguirre et al., 2005).

In the rest of this chapter, we will cover how you can add ideas from this book to your OB Toolbox in each section and assess your own learning style along the way. In addition, it is important to understand the research methods used to define OB, so we will also review those. Finally, you will see what challenges and opportunities businesses face and how OB can help overcome these challenges.

Throughout the book, you will see many OB Toolbox features. Our goal is to create something useful for you to use now and as you progress through your career. Sometimes we will focus on tools you can use today. Other times we will focus on things you may want to consider in the future. As you progress, you may discover some OB tools that are particularly relevant to you while others are not as relatable at the moment. You can always go back and pick up tools later on if they do not seem applicable right away.

The important thing to keep in mind is that the more tools and skills you have, the higher the quality of your interactions with others will be and the more valuable you will become to organizations that compete for top talent (Michaels, Handfield-Jones, & Axelrod, 2001). It is not surprising that, on average, the greater the level of education you have, the more money you will make (Education and training have financial payoffs as illustrated by these unemployment and earnings for workers 25 and older. Source: U.S. Bureau of Labor Statistics,

Tom Peters is a management expert who talks about the concept of thinking of one’s self as a brand to be managed. Further, he recommends that individuals manage themselves like free agents (Peters, 1997; Peters, 2004). The following OB Toolbox includes several ideas on effectively updating your skill set.

OB is also important when determining whether an organization is effective or not. Organizational effectiveness requires assessing: (1) how well the organization performs, (2) how well the internal operations function, (3) what external factors are impacting the organization, and (4) the perceptions of shareholders, managers, and customers (Richard et al., 2009). There are various internal aspects of the organization that need to be examined, including the following:

• Decision Making
• Change & Learning
• Group Effectiveness
• Self-Organizing and Adaptive Systems

All of the above areas are studied in OB!

Isn’t OB Just Common Sense?

As teachers, we have heard this question many times. The answer, as you might have guessed, is no—OB is not just common sense. As we noted earlier, OB is the systematic study and application of knowledge on how individuals and groups act within the organizations they work for. Systematic is an important word in this definition. It is easy to think we understand something if it makes sense, but research on decision making shows that this can easily lead to faulty conclusions because our memories fail us. We tend to notice certain things and ignore others. The manner in which we frame information can affect the choices we make. Therefore, it is important to rule out alternative explanations one by one rather than assuming we know human behaviour just because we are humans! Go ahead and take the following quiz and see how many of the 10 questions you get right. If you miss a few, you may realize how OB isn’t just common sense. If you get them all right, you are way ahead of the game!

1.1 Trends and Changes

Challenges and Opportunities

There are many trends within the workplace and around the globe that have and will continue to affect the workplace and your career. We are sure you have noticed many of these trends simply by reading news headlines. We will highlight some of these trends along with the challenges and opportunities they present for students of organizational behaviour.

Ethical Challenges

Business ethics refers to applying ethical principles to situations that arise at work. It feels like it’s been one ethical scandal after the other. Enron Corp., AIG, Tyco International, WorldCom, and Halliburton Energy Services have all been examples of poor judgment or outright illegal behaviour. The immediate response by government has been the Sarbanes-Oxley Act, which went into effect in 2002. This act consists of 11 different requirements aimed at greater accountability, which companies must comply with in terms of financial reporting. While there may be some benefits to businesses from complying with these rules (Wagner & Dittmar, 2006), few see this as the long-term solution to dealing with unethical behaviour. The challenge is to continue to think about business ethics on a day-to-day basis and institute cultures that support ethical decision making. There is great opportunity for organizations to be on the forefront of ethical thinking and actions. OB research finds that the most important determinant of whether a company acts ethically is not necessarily related to their ethical conduct policies and rules. Instead, the most valuable indicator is whether a company has a culture that fosters consistent ethical behaviour and leaders who are committed to it (Driscoll & McKee, 2007).

Lack of Employee Engagement

Studies suggest that fostering engagement, a concept related to passion, in employees has a significant impact on the corporate bottom line. Gallup, for instance, has been on the forefront of measuring the impact of what is called employee engagement. Employee engagement is generally viewed as methods for which a company manages the discretionary efforts of its employees, that is, the effort that extends beyond the minimum requirement which employees willingly exert to further their organization’s interests. An engaged employee is a person who is fully involved in and enthusiastic about their work (Employee engagement, 2008). The consulting firm BlessingWhite offers this description of engagement and its value: “Engaged employees are not just committed. They are not just passionate or proud. They have a line-of-sight on their own future and on the Organization’s mission and goals. They are ‘enthused’ and ‘in gear’ using their talents and discretionary effort to make a difference in their employer’s quest for sustainable business success” (BlessingWhite, 2008).

Engaged employees are those who are performing at the top of their abilities and happy about it. According to statistics that Gallup has drawn from 300,000 companies in its database, 75% – 80% of employees are either “disengaged” or “actively disengaged” (Gallup Press, 2006).

That’s an enormous waste of potential. Consider Gallup’s estimation of the impact if 100% of an organization’s employees were fully engaged:

  • Customers would be 70% more loyal.
  • Turnover would drop by 70%.
  • Profits would jump by 40%.

Job satisfaction studies in the United States routinely show job satisfaction ratings of 50% – 60%. But one recent study by Harris Interactive of nearly 8,000 American workers went a step further (Zinkewicz, 2005). What did the researchers find?

  • Only 20% feel very passionate about their jobs.
  • Less than 15% agree that they feel strongly energized by their work.
  • Only 31% (strongly or moderately) believe that their employer inspires the best in them.

It is clear that engagement is both a challenge and an opportunity for OB.


A consequence of greater connectivity is the potential for more work-family spillover and conflict.
Figure 1.3 A consequence of greater connectivity is the potential for more work-family spillover and conflict. Ben W – John Woo style – CC BY-NC 2.0.

Technology has transformed the way work gets done and has created many great opportunities. The nexus of increasing personal computing power, the Internet, as well as nanotechnology are allowing creations that were unimaginable 50 years ago. The rate of technological change is not expected to slow down anytime soon. Gordon Moore, cofounder of Intel Corp., shocked the world in 1975 with what is now termed Moore’s Law, which states that computing power doubles every 2 years. This explains why a 4-year-old computer can barely keep up with the latest video game you have purchased. As computers get faster, new software is written to capitalize on the increased computing power. We are also more connected by technology than ever before. It is now possible to send and receive e-mails or text messages with your coworkers and customers regardless of where in the world you are. Over 100 million adults in the United States use e-mail regularly (at least once a day) (Taylor, 2002) and Internet users around the world send an estimated 60 billion e-mails every day (CNET UK., 2006), making e-mail the second most popular medium of communication worldwide, second only to voice. Technology has also brought a great deal of challenges to individuals and organizations alike. To combat the overuse of e-mail, companies such as Intel have instituted “no e-mail Fridays,” in which all communication is done via other channels. This technology trend contains challenges for organizational behaviour.

Flattening World

Thomas Friedman’s book The World Is Flat: A Brief History of the Twenty-First Century makes the point that the Internet has “flattened” the world and created an environment in which there is a more level playing field in terms of access to information. This access to information has led to an increase in innovation, as knowledge can be shared instantly across time zones and cultures. It has also created intense competition, as the speed of business is growing faster and faster all the time. In his book Wikinomics, Don Tapscott notes that mass collaboration has changed the way work gets done, how products are created, and the ability of people to work together without ever meeting.

There are few barriers to information today, which has created huge opportunities around the globe. Marc Andreessen, cofounder of Netscape Communications Corporation, notes, “Today, the most profound thing to me is the fact that a 14-year-old in Romania or Bangalore or the Soviet Union or Vietnam has all the information, all the tools, all the software easily available to apply however they want” (Friedman, 2005). Of course, information by itself is not as important as having the right information at the right time. A major challenge for individuals in the flattened world is learning how to evaluate the quality of the information they find. For tips on how to evaluate the quality of information, see the OB Toolbox below.

Sustainability and Green Business Practices

The primary role of for-profit companies is to generate wealth for their shareholders. More recently, the concept of the triple bottom line has been gaining popularity. Those subscribing to the triple bottom line believe that beyond economic viability, businesses need to perform well socially and environmentally. While some organizations have embraced the triple bottom line, businesses are also undergoing a great deal of “greenwashing,” where products or processes are marketed as green to gain customers without truly engaging in sustainable business practices. Sustainable business practices are those that meet the present needs without compromising the needs of future generations. The challenge is to reconcile the accountability that publicly owned firms have to their shareholders while attending to the triple bottom line.

On the other hand, organizations also have an opportunity to proactively innovate for not only sustainability but also even greater profits. For example, sales of the Toyota Prius, which combines combustion engine efficiency with hybrid electric technology, have been dramatic and have helped propel Toyota to record market share and profits. An unlikely leader in the sustainability movement is Wal-Mart. Wal-Mart hired Adam Werbach, the former president of the Sierra Club, to help train 1.3 million North American Wal-Mart employees on sustainability. Wal-Mart has also been pressuring suppliers to produce compact fluorescent lightbulbs with less mercury and has slashed the resources needed in packaging by requiring all suppliers to make packages smaller (Fetterman, 2006; Sacks, 2007). In the future, increasing interdependence between businesses, governmental agencies, and NGOs is bound to effect change throughout the economy (Campbell, 2007; Etzion, 2007).

Aging Workforce and the Millennial Generation

You have probably heard that the American workforce is aging. Over the next 30 years, 76 million baby boomers will retire, but there will only be 46 million new workers from Generations X and Y entering the labor force. For example, everything from air traffic controllers to truck drivers are predicted to be in huge demand as thousands of retiring workers leave these industries at roughly the same time (Ewart, 2008; Watson, 2008).

The Millennial Generation (which includes those born between 1980 and 2000) differs from previous generations in terms of technology and multitasking as a way of life. Having never known anything different, this population has technology embedded in their lives. In addition, they value teamwork, feed- back, and challenging work that allows them to develop new skills. If you are in this generation or know those who are, you know there is an expectation of immediate interaction (Oblinger, 2003). The challenge for organizational behaviour is to keep individuals of different generations communicating effectively and managing people across generational lines despite differing values on teamwork, organizational rewards, work–life balance, and desired levels of instruction.

The Global Marketplace for Staffing: Outsourcing

Outsourcing has become a way of life for many organizations—especially those based in the United States who are outsourcing to countries where labor is relatively inexpensive. Outsourcing refers to having someone outside the formal ongoing organization do work that was previously handled in-house. This practice can involve temporary employees, consultants, or even offshoring workers. Offshoring means sending jobs previously done in one country to another country. Nowhere is there more outsourcing and offshoring than in the software technology industry. A survey of software developers revealed that 94% outsource project work. When they offshore, the work most frequently goes to India, Singapore, Russia, and China (McGee, 2007). Microsoft has been expanding their use of employees in Canada for a variety of reasons such as closer proximity to Microsoft’s headquarters in Seattle, Washington, as well as similarity of language and time zones. Across industries, more than 80% of boards of directors in the United States have considered offshore outsourcing (Diana, 2003). Charles Handy, author of The Age of Paradox, coined the term shamrock organization, which is an organization comprised of one-third regular employees, one-third temporary employees, and one-third consultants and contractors. He predicts that this is where organizations are headed in the future. The darker side of the changing trend in organization composition revolves around potential unemployment issues as companies move toward a shamrock layout. Fortunately, this shift also presents an opportunity for organizations to staff more flexibly and for employees to consider the tradeoffs between consistent, full-time work within a single organization versus the changing nature of work as a temporary employee, contract worker, or consultant—especially while developing a career in a new industry, in which increased exposure to various organizations can help an individual get up to speed in a short amount of time. The challenge for organizational behaviour is managing teams consisting of different nationalities separated not only by culture and language but also by time and space.

1.2 Maintaining Core Values: The Case of Nau

A relatively young company, Nau (pronounced “now”) was founded on the idea of using business as a vehicle for change, but its path has not been easy. Nau was established in 2005 by a group of like-minded individuals from Pacific Northwest clothing companies such as Patagonia, Nike, and Marmot. Their goal was to create outdoor urban apparel constructed from sustainable materials and processes, with the entire life cycle of the product in mind. This includes taking into account the cultivation of textiles all the way through to end-of-life disposal. After 3 years of aggressive growth and expansion, Nau declared bankruptcy in the spring of 2008 when they could not secure further funding. But only a few short months later, Nau reopened as a subsidiary of outdoor clothing company Horny Toad Inc., headquartered in Santa Barbara, California. Although Nau is part of a larger company, it has been able to create a balance between the ideals of a small, independent, entrepreneurial business while being a successful part of a larger company.

Brad K. – Goodwill – CC BY 2.0.
Figure 1.4 Brad K. – Goodwill – CC BY 2.0.

The power structure that Nau shares with Horny Toad is decentralized; logistically, the companies share a human resources department, IT, warehousing space, and finances, but Nau maintains its product independence and business strategy. From the time of its inception, Nau created a network of close relationships with its overseas manufacturers, which allowed the company the power and ability to closely control its production process. During the transition, Nau desired to maintain these relationships and so endure the arduous process of explaining its bankruptcy to overseas vendors and attempting to explain the process of transferring debt and liabilities from one company to another. Although the people and faces were the same, they were no longer connected with that debt. Nau’s small size enabled it to effectively control its supply chain and to determine everything from which farm its raw materials come from to how and where textiles are produced. For Nau, responsibility does not end with the consumer’s purchase. Other changes include the number of employees at Nau, which prior to the bankruptcy was 65. In 2010, this number is down to 15 employees. While several of the individuals who took part in the founding of the company are still there, change was not embraced by all. Some felt that becoming part of a larger company would make it difficult to maintain the original core values and beliefs.

So far, these changes have been good for the company and good for business. Nau was acquired at the beginning of an economic downturn, and for a company that is dependent on consumer discretionary spending, this might have been a recipe for failure. But business is picking up for Nau, and it has been able to continue its Partners for Change program, in which Nau donates 2% of each sale to one of its partner organizations, such as Mercy Corps, Kiva, or Ecotrust—together working to create positive economic and social change.

Based on information from an interview with Jamie Bainbridge, director of textile development and sustainability at Nau. Additional information from Nau website ( and Future Fashion White Pages (

1.3 Conclusion

This chapter is designed to familiarize you with the concept of organizational behaviour. We have covered methods organizations might use to address issues related to the way people behave at work. In addition, you should now be familiar with the large number of factors, both within an individual and within the environment, that may influence a person’s behaviors and attitudes. In the coming years, society is likely to see a major shift in the way organizations function as a result from rapid technological advances, social awareness, and cultural blending. OB studies hope to enhance an organization’s ability to cope with these issues and create an environment that is mutually beneficial to the company as well as its employees.

1.4 Exercises


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Organizational Behaviour by Seneca College is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License, except where otherwise noted.